CGS-CIMB Research analyst Izabella Tan has taken a closer look into Enviro-Hub Holdings’ prospects in an unrated report dated Oct 11.
In her report, the analyst notes that Enviro-Hub plans to focus on growing its e-waste recycling and healthcare segments, such as gloves and pharmacies for the latter, from FY2022 onwards.
The company’s FY ends in December.
At its current share price, the company is trading at a 0.9x 2002 price-to-book value ratio (P/BV) compared to its e-waste recycling peers at 1.5x 2002 P/BV and glove peers at 0.8x 2002 P/BV, according to Bloomberg’s estimates.
In Tan’s view, Enviro-Hub is a “mini conglomerate” with e-waste recycling as its core driver — the four segments it owns are trading, recycling and the refining of e-waste and metals; manufacturing and the trading of healthcare products; property investments and management; and piling contracts, construction, rental and the servicing of machinery.
Worst is ‘almost over’ for glove industry
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In FY2021, Tan notes that the company penetrated the glove manufacturing and healthcare consumable sectors through its 100% acquisition of Pastel Glove Sdn Bhd, a Malaysian glove company.
To the analyst, Enviro-Hub’s glove business is underpinned by a profit guarantee, as it expects a full year contribution from four fully commissioned production lines. As part of the acquisition agreement dated Aug 5 2021, Pastel Glove founder Law Siau Woei provided a profit guarantee of $23.4 million from FY2022 to FY2024.
In addition, Enviro-Hub’s glove business is set to benefit from the rising demand in gloves on the back of rising hygiene awareness, an ageing population, as well as the recovery in non-Covid-19 demand.
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According to the Malaysian Rubber Glove Manufacturer’s Association (MARGMA)’s industry brief for 2022, the association believes that the worst is almost over for the glove industry as demand normalises.
In its brief, the association forecasted a growth of 12% to 15% in global glove demand in 2022. The brief also projects the export value for Malaysian rubber gloves to grow at a compound annual growth rate (CAGR) of 10% in 2023 to 2030. According to MARGMA, Malaysia currently commands the largest market share of the glove industry at 65% in 2022.
Enviro-Hub’s pharmaceutical segment not your average pharmacist
In the pharmacy space, the analyst notes that the company opened its first retail pharmacy, R Pharmacy, in April though its 40% owned joint venture (JV). According to Enviro-Hub, it has seven outlets as at Oct 2 and targets to have 25 outlets by April next year and 90 outlets by Dec 2024, with an average capital expenditure (capex) of RM500,000 to RM600,000 ($153,000 to $183,000) per store to be funded internally.
Tan says: “Enviro-Hub differentiates itself through in-house pharmacists who provide personalised advice and high-quality services to customers. By branding itself as a premium service, Enviro-Hub captures revenue from the sale of pharmaceutical products, as well as from the listing of stock-keeping units (SKUs) and advertisements, such as posters and vending machines in its pharmacies.”
Enviro-Hub’s revenue for e-waste recycling could jump 50% y-o-y in FY2022
Meanwhile, its revenue for e-waste recycling could jump 50% y-o-y in FY2022, with its 1HFY2022 revenue for this segment already growing to $16.4 million, a 14.6% y-o-y increase, and making up 71.7% of total group revenue.
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“Enviro-Hub also expects a 50% y-o-y jump in e-waste recycling revenue in FY2022 from the addition of a new MNC customer, coupled with projects for other new customers in 2022, as per 1H22 slides,” says Tan. She adds that by 2HFY2022, Enviro-Hub will have expanded its capacity by 40% from 3,600 to 5,100 tonnes per year to cater to a larger volume of e-waste.
Tan also says that the company has improved its net gearing from 1.56x in FY2020 to 0.48x in FY2021 by disposing $63 million worth of investment properties in FY2021 and further lowered its net gearing further to 0.45x in 1HFY2022.
“We understand that most of its existing debt relates to property loans which will be paid down upon disposal of its properties, according to its 1HFY2022 briefing. However, the management prefers to hold its properties for now in view of the appreciating property market,” says Tan.
“Should it successfully dispose of its remaining $60.5 million of investment properties as at 1HFY2022, its net debt position could be reversed to net cash,” she adds.
As at 1.41pm, shares in Enviro-Hub traded flat at 4.8 cents per share.
